A Project Has a Net Initial Investment of $500,000 and the Cash

question 127

Multiple Choice

A project has a net initial investment of $500,000 and the cash flows cover five years.The project involves replacing an old machine with a new machine at the same time.Which of the following is TRUE based on the above assumptions, in NPV analysis?

• A)The book value of the old machine is relevant.
• B)Recurring operating cash flows cannot be positive and negative.
• C)Incremental working capital investment is irrelevant.
• D)Any cash received from the disposal of the old machine would be a relevant cash flow for end of year 1.
• E)Errors in forecasting the terminal disposal price of the new machine are seldom critical on long-duration projects.

---

Definitions:

Motivation

The process that initiates, guides, and maintains goal-oriented behaviors.

Cognitive Ability

The capacity to perform mental processes like learning, reasoning, problem solving, and decision making.

Integrity

The quality of being honest and having strong moral principles.

Flexibility

The ability to adapt to changes and respond to varying environments or circumstances.